Beware of special deals: Is it too good to be true?

Like any emerging industry, legal cannabis attracts a lot of risk-takers with dreams of making it big. Unfortunately, it also attracts a lot of fraudsters, luring investors with promises of fast and easy profits. FOMO (Fear of Missing Out) sets in, and people tend to rush into the next great deal without taking the time to ask one important question – Is this too good to be true?

Skipping necessary care and due diligence can work just fine, especially for those with a high tolerance for risk – except when it doesn’t. Take, for example, the case of Dr. Josse Anthony Mazo and Dr. Maritza Riascos (husband and wife), who invested $1.1 million in Full Spectrum Nutrition, a company located in Colorado Springs, Colorado. Now the doctors are suing Full Spectrum owner John Michael Merritt Jr. for $4.4 million, claiming the funds went to a Costa Rican wildlife refuge, which was not part of the proposed business plan. Merritt countersued, and the story goes downhill from there.

According to Mazo and Riascos, Merritt claimed his company “had a special deal in which it received CBD-infused products at below-wholesale prices from Folium Biosciences, a Colorado Springs-based hemp-products wholesaler.” This allowed Full Spectrum to sell these products at retail for a huge profit. Merritt even took the doctors on a tour of Folium Biosciences and claimed an ongoing equity interest in the firm.

However, in their lawsuit, Mazo and Riascos claim that Merritt did not actually have an interest in the Folium, and he arranged the tour through a connection at the firm. They also claim that their investment was to be used only for building and equipping a Full Spectrum Nutrition business office in Colorado Springs and nothing else.

Granted, I don’t know what steps the doctors took before investing to verify claims made by Merritt, I’m not an attorney, I’ve never had a spare $1.1 million to invest, and, yes, hindsight is 20/20. But after reading about this case and Merritt’s counterclaims, I’m going to nominate Mazo and Riascos for the Due Diligence Hall of Shame, because their actions left me wondering:

Did they ask questions about the alleged “special deal” on Folium’s products? In an industry with such high demand, why would a company offer such terms? Does anyone else get these prices? Surely the couple could have verified this information.

Did they check with people at Folium about Merritt’s interest in the firm? Yes, one person from Folium provided the tour, but this was a big investment, and it’s prudent to check records and confirm with others within the firm.

Did they wait until the entire $1.1 million was gone to discover the fraud? Keeping tabs on the progress of your investment and conducting ongoing due diligence can help make sure all goes according to plan.

Did they find out what Merritt didn’t divulge? Just verifying supplied information isn’t enough. Were there clues in Merritt’s personal and professional lives that would make someone hesitate before handing over such a large sum of money. Past behavior tends to predict future behavior.

Don’t be reckless and wind up in business with fraudsters. As with any industry, cannabis investors need to slow down and do their due diligence – and don’t forget ask one important question: “Is this deal too good to be true?”

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2 comments

This lawsuit is 100% BOGUS. You should report on the cross-complaint! Here is also a link to the news. These doctors and their lawyers have tried to destroy the reputation of a good person – John Merritt. Read the Cross-Complaint and LEARN THE OTHER SIDE OF THE STORY!!!

Thanks for sharing the info about this cross-complaint, Michael. As I mentioned in my post, Merritt countersued, and I linked to the Westword article. My point is not to analyze the validity of the court case, but to point out that the doctors probably didn’t conduct their due diligence. And perhaps Merritt and Full Spectrum didn’t check out these investors beforehand, also a good idea in the pre-deal stage.